B & H Apartments Partnership v. Tharp

• Decision Date: 27 December 1990
• Docket Number: No. 89-1661,89-1661
• Citation: 466 N.W.2d 694
• Parties: B & H APARTMENTS PARTNERSHIP; Guy C. Beals, Jr., and Eugene Hiskey, Partners, Plaintiffs-Appellants, v. Kenneth D. THARP, Kristen S. Tharp, Defendants-Appellees, and Joseph R. Schaffer and Leah Schaffer, Defendants.
• Court: Iowa Court of Appeals

Page 694

466 N.W.2d 694

B & H APARTMENTS PARTNERSHIP; Guy C. Beals, Jr., and Eugene Hiskey, Partners, Plaintiffs-Appellants, v. Kenneth D. THARP, Kristen S. Tharp, Defendants-Appellees and Joseph R. Schaffer and Leah Schaffer, Defendants.

No. 89-1661.

Court of Appeals of Iowa.

Dec. 27, 1990.

Donald G. Henry of Belin Harris Helmick Tesdell Lamson McCormick, P.C., Des Moines, for appellants.

Robert B. Scism of Scalise, Scism, Sandre & Uhl, Des Moines, for appellees.

Considered by SCHLEGEL, P.J., and HAYDEN and HABHAB, JJ.

SCHLEGEL, Presiding Judge.

Plaintiffs, B & H Apartments Partnership (B & H), Guy C. Beals, Jr., and Eugene Hiskey, appeal district court rulings granting foreclosure of a real estate contract but denying personal judgments against defendants, Kenneth D. and Kristen S. Tharp (Tharps) and Joseph R. and Leah Schaffer (Schaffers). The issues presented are (1) whether assignors of a vendee interest in a real estate contract may, by their assignment, escape personal liability to contract vendors, and (2) whether the contract vendors, by their actions or inactions in enforcing contract provisions against assignee-vendees, released the assignor-vendees from personal liability. We think the assignors remain liable and, therefore, reverse.

Beals and Hiskey, doing business as B & H Apartments, owned a six-unit apartment building in Des Moines. On March 1, 1983, they entered into a real estate contract for the sale of the property to the Tharps for $55,500. The contract specified that the vendee should not remove or destroy improvements or make material alterations during the contract without written consent of the vendors. The contract further specified that "the liability of Buyer under this contract shall not cease or be terminated by the assignment of this contract by the Buyer, unless such liability is specifically released by the Seller by a writing to such effect...." On November 30, 1983, the Tharps assigned the real estate contract and executed a quit claim deed to the Schaffers. The assignment required the Schaffers to assume all terms of the Tharps' contract with B & H and incorporated that contract by reference.

Under a "Statement" and "Acceptance of Contract Assignment" prepared by Tharps, B & H agreed that Tharps had fulfilled various contractual obligations to give notice of sale or assignment. This document further stated that B & H agreed that the Tharps "may assign and convey their interests in [the] real estate and purchase contract" to the Schaffers. The document does not purport to be a novation.

In August 1984 B & H discovered that the Schaffers had gutted the building, removing everything but the wall studs. Concerned by the blatant contract violation and the reduction in value of the property, B & H discussed the problem with the Schaffers. Whether B & H contacted the Tharps is disputed. There is undisputed evidence that Hiskey discussed with Mr. Tharp the extensive work being done on the property sometime in the summer of 1984.

The Schaffers promised a major renovation of the building. B & H took no legal action. Little significant improvement was made to the empty building shell. The Schaffers continued to make payments on the contract until April 1987, when they disappeared. B & H demanded payment under the contract from the Tharps, but the Tharps refused because the property was then worth considerably less than the contract balance. Moreover, because of inadequate setbacks, the nonconforming use could not be changed except to a permitted use.

B & H sued the Tharps and the Schaffers ¹ for breach of contract and to foreclose defendants' interests in the real estate pursuant to Iowa Code chapter 654. Plaintiffs sought joint and several liability against the Tharps and the Schaffers for $57,653.32 principal and interest remaining on the real estate contract. The case was tried to the court, sitting without a jury, which entered a decree in favor of defendants in all respects. Acting on a rule 179(b) motion to enlarge and amend findings, the trial court entered a supplemental decree granting plaintiffs an in rem judgment for $61,839.46, interest, costs, and attorney fees. The court entered a judgment of foreclosure, but again denied plaintiffs' requested relief of personal judgments against defendants.

In reaching its decision, the trial court found that "[t]he question of Tharps' continuing liability on the said contract ... was materially altered and affected by the failure of Plaintiffs to immediately notify, or at least inform, Tharp as to the existing facts regarding the discovered demolition." Thus, the court held B & H "effectively discharged Tharp[s] as suret[ies] ... upon their acceptance of, and acquiescence in, the remodeling and resultant demolition of the value of the asset," while accepting contract payments and without notice to the Tharps. Plaintiffs' actions, the trial court concluded, amounted to a ratification of the Schaffers' conduct, a modification of the contract, and changed the nature and value of the underlying security. Finally, the court stated, "No part of the fault for the Schaffers' destructive acts, or the loss of the nonconforming use of the property, can be attributed to the Tharps."

Because this case was tried in equity, our review is de novo. Iowa R.App.P. 4; see Rector v. Alcorn, 241 N.W.2d 196, 199 (Iowa 1976) (quoting Grandon v. Ellingson, 259 Iowa 514, 518, 144 N.W.2d 898, 901 (1966)); Davenport Osteopathic Hosp. Ass'n v. Hospital Service, Inc., 154 N.W.2d 153, 157 (Iowa 1967). We give weight to the trial court's findings of fact, especially when they are dependent on the credibility of witnesses, Iowa R.App.P. 14(f)(7), but like the trial court's conclusions of law, we are not bound by them.

Plaintiffs contend the trial court erred in failing to order entry of a personal judgment for the deficiency. First, plaintiffs argue that the trial court erred in finding them at fault for any depreciation in the value of the property. Second, plaintiffs argue the trial court erred in finding a contract modification discharging Tharps.

Under the contract and Iowa case law, an assignor of a contract is not released from liability unless the parties agree to a novation, which requires (1) a previous valid obligation, (2) agreement of all parties to a new contract, (3) extinguishment of the old contract, and (4) the...